Spousal Coverage (Benefit Tips ® - © 2015)
Can benefits be reduced for employees with coverage through their spouse?
Employers often ask if they can give more coverage to employees who don’t have coverage through their spouse. They don’t want to waste benefits on employees who don’t need them. The challenge with this thinking is that any benefit plan fully satisfies our needs. A simple example is orthodontics; an employee who has a child that needs braces for their teeth needs benefits from having coverage under two plans since most good plan would only cover half the cost.
Built in Cost Savings:
With both a defined health benefit plan (health insurance) and defined contribution health benefit plan (health spending account), the employer’s costs are reduced when employees have coverage through their spouse’s insurance plan. If you use health spending accounts, then all claims are first paid by the spouses’ plans and your plan only the unpaid portion. If you use insurance, then the spouses’ plans pay the spouse’s claims as well as the children’s claims when the spouse’s birthday is earlier in the calendar year than the employee’s birthday.
Further Reducing Health Costs by Reducing Coverage:
Occasionally, employers will gain additional cost savings by excluding people from their health insurance benefit plan:
- Exclude coverage for spouses who work 30 or more hours per week (they should be covered by their employer) – this is difficult to monitor and adds financial pressure if the spouse does not have benefits.
- Require employees to contribute (i.e. 25%) toward the cost of health premiums (encourages those with spouses to waive coverage) – this is not tax-effective in that employees are contributing to non-taxable benefits with after-tax dollars.
Occasionally, employers will gain additional cost savings by reducing the health spending account contribution for those with spousal coverage:
- Reduce contribution (i.e. by 50% ) for employees that are covered by a spouse’s health insurance plan – this is difficult to monitor and limits the ability to cover items not covered by insurance.
Assess every aspect of your benefit plan design to your benefit goals to ensure that it delivers appropriate incentive to the types of employees that you are trying to attract, motivate and retain. The plan should be valuable to employees regardless of their level of need or coverage elsewhere.